Be Thankful For Quants

Plus: You know what they say about wounded tigers and tech valuations? ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

May 15, 2023

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TOGETHER WITH

Good morning.

The XFL has come all the way back! A miracle, really. So what if no one’s watching and the NFL is yawning?

Originally an edgy (but not really) take on American football helmed by WWE’s scandal magnate Vince McMahon, the XFL lasted only one season before crumbling in 2001. It returned in 2020, but, you know, pandemic. But this past Saturday marked the second-ever championship game for the spring league, now owned by Dwayne “The Rock” Johnson. Although an XFL game averages a few hundred thousand viewers compared to the NFL’s 16 million, the ever-positive Johnson had optimistic words for that: “Rome wasn’t built in a day. This league isn’t going to be built in a day.” But it took 1,229 years to build Rome, and we’re guessing the XFL doesn’t have that long.

Morning Brief

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Is Tiger Global in trouble?

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And the vaccine you rode in on.

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Stock-trading algorithms are riding high.

Hedge Funds

Tiger Global Wants to Sell Portions of its Empire

You can’t put a price tag on how badly some of Tiger Global’s big technology bets are performing — and therein lies the problem.

This weekend, the Financial Times reported that the massive hedge fund that collects tech startups like baseball cards is exploring opportunities to offer portions of its $40 billion portfolio to the so-called secondary market of private equity players. Figuring out how to value all that is going to be the tricky part.

Hedge Your Bets

Last year’s epic stock market tech rout is still pounding Tiger, long a true believer in Silicon Valley’s infinite-scalability hype cycles. Last year, Tiger marked down the value of its private company investments across all its venture-capital funds by an entire 33%, sources recently told The Wall Street Journal, reportedly erasing some $23 billion in value.

Meanwhile, Tiger’s flagship fund saw its value slashed by more than half in 2022 — amounting to its worst-ever annual loss. The slippage is even easier to explain on a more granular, case-by-case basis. A prime example: While raising capital for a new $5 billion venture fund last fall, Tiger told investors that its stake in Stripe, one of the manager’s marquee bets, was worth $1.6 billion as of June 2022. But when Stripe finalized a $6.5 fundraising deal just this March, it came in at a valuation of nearly half of what the company had raised at before — seemingly dooming, for now, a public debut once deemed fait accompli.

It’s almost no wonder then that the IPO market is ebbing and private equity deals are flowing:

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Through the first quarter of 2023, the amount of cash raised globally through IPOs dropped over 60% year-over-year to just over $21 billion.

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Without easy public market access, firms like Tiger have been forced to tap the secondary market to generate the cash needed to pay back investors. That’s rapidly inflated the value of deals in the space — last year saw several secondary deals worth over $100 billion, which is roughly five times the typical value of transactions seen just a decade ago, according to a Raymond James report seen by the FT.

Price-less: That doesn’t mean selling on the secondary market will be easy. Sources told the FT that deals are likely to be challenged by the complicated process of agreeing on a startup’s value. Worse, sources also told the FT that other large venture capital firms are exploring similar avenues for selling off assets — meaning Tiger is like one of many sellers among perhaps few buyers. Maybe this is what it looks like when a tiger loses its stripes.

– Brian Boyle

Health

Covid Vaccine Producer Says Government Should Stick to Their Promises

(Photo credit: Mufid Madjun/Unsplash)

The World Health Organization recently announced covid is no longer a global emergency. Hooray! That is unless you’re Novavax, the biotech outfit once billed as an antidote to vaccine hesitancy but like other government-approved vendors is now awash in cancellations as demand for jabs collapses.

Novavax CEO John Jacobs told the Financial Times governments might not deliver on their existing commitments for vaccine purchases, meaning the now-struggling pharma business could face even further hardships.

Just Gimme a Shot

When thousands of people were dying every day from covid, world governments leaned heavily on biotech companies to develop and deliver vaccines. This was a huge boon for biotech. Pre-pandemic, Novavax stock was trading at just a few bucks a piece and its market cap sat at less than $1 billion. By February 2021, the company was worth more than $20 billion.

But now that nearly 75% of the globe is vaccinated and nations are sitting on stockpiles of unused, expiring doses, the immediate need for jabs has shrunk. Administrations and non-profits are re-evaluating their contracts, trying to get repayments for vaccines they no longer require:

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In 2020, the US awarded Novavax $1.6 billion for vaccine development and manufacturing. But the only traditional (non-mRNA) jab was incredibly late to market, only getting FDA approval in July 2022. By this February, just 77,500 doses of the vaccine had been administered out of the 1 million doses Novavax delivered so far, The Hill reported. In its latest earning report, Novavax’s total revenue for the first quarter was $81 million compared to $704 million in the same period in 2022.

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Drug companies have so far declined to refund $1.4 billion in advance payments for now-canceled doses, The New York Times reported in February. Gavi, the Vaccine Alliance, originally ordered $700 million worth of Novavax doses starting in summer 2021. But after the pharmaceutical company failed to deliver, Gavi canceled its order. Novavax argued it was a breach of contract and kept the money. The two organizations are currently battling it out in court.

“We had to invest billions . . . to deliver a vaccine,” Jacobs told the FT. “And then to all of a sudden say: ‘Well you spent all your money, you committed to protect our citizens. Now we don’t think we need it as much. Sorry, you’re out of luck.’ That’s probably not good for long-term relationships.”

There’s Still Hope: Despite the company’s “substantial doubt” regarding its ability to stay afloat, there could still be a bright future for the Maryland-based medical biz. Novavax is continuing to develop its covid vaccine for seasonal outbreaks, and it’s working on a two-in-one covid/flu shot. Immunize.org’s Dr. John Grabenstein told The Washington Post Novavax has the chance to capture “a small but meaningful share” of the market.

– Griffin Kelly

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Stock Market

Computers Might be the Last Bulls Standing

Banking failures. An unrelenting Fed. Sagging corporate earnings. Even Buffett is singing a leery tune.

So, how is it that the S&P is up 8% so far this year? Thank the computers and their algorithm-driven trading models, says a growing chorus of analysts.

Feel Not, Worry Not

Human investors — mere mortals whose sentiment can suffer at the whim of a convincing headline — have had a lot to absorb of late. In what’s considered a base case for many, minutes from a recent Fed meeting suggest the likelihood of a “mild recession” this year. At worst, DC gridlock could render the nation incapable of paying its debt in a few precious weeks, a threat that Consumer Financial Protection Bureau director Rohit Chopra declared a “Big worry. Every family should be concerned.”

All of it weighs on the anthropoid class. Analysts at Bank of America recently proclaimed that “bulls are becoming an endangered species,” and market exposure among active managers is approaching a one-year low.

As for quant funds and their trend-spotting supercomputers, bullishness is at a multi-year high. According to analysts who spoke to the FT, systematic funds are pouring into stocks at the fastest rate in decades and moving markets in the process:

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Figures from Nomura suggest that vol controlled funds — which employ hedges to minimize portfolio volatility — have added roughly $72 billion in the past three months. “Systematic reallocation has really been the [main] source of demand outside of corporate buybacks” this year, Charlie McElligott, an equity derivatives strategist at Nomura, told the FT.

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Separate analysis by Deutsche Bank showed overall equities positioning across systematic funds is at its highest level since December 2021.

“These funds move fast and unemotionally,” said McElligott. “They’re not parsing through earnings or taking a view on the stickiness of inflation . . . this is about price trends and momentum.”

Who’s Leading Who? Parag Thatte, a strategist at Deutsche, told the FT: “We do see their trading has a big impact on equities … they don’t tend to lead the market . . . [but] they tend to amplify moves that are already happening.” Notably, this train works in both directions, with algorithmic fund flows contributing to last year’s 19% drop in the S&P 500. Bow, to your algo overlords.

– Patrick Trousdale

Extra Upside

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You’re Welcome, Moms: Mother’s Day gift spending is reaching record highs.

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It all ads up: Elon Musk taps NBCUniversal advertising executive for Twitter CEO gig.

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Newsflash: Forbes sells to tech exec Austin Russell at $800 million valuation.

Just For Fun

Location, location, location.

Dog sled.

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